Boardroom Diversity: Diversifying the Debate

Since the publication in 2011 of Lord Davies’s Women on Boards Report, boardroom diversity has been a prominent governance topic. However, the debate has focused almost exclusively on one type of boardroom diversity, namely gender diversity. This was not always the case. The 2003 Higgs Review on the effectiveness of non-executive directors stated that ‘it is the range of skills and attributes acquired through a diversity of experiences and backgrounds that combine to create a cohesive and effective board.’ In the same year, the overlooked Tyson Report stated that ‘[d]iversity in the backgrounds, skills, and experiences of NEDs enhances board effectiveness by bringing a wider range of perspectives and knowledge to bear on issues of company performance, strategy and risk.’ Both of these reports recognised that boardroom diversity is not just about gender, and that numerous forms of diversity should be encouraged. Despite this, as noted, the debate has almost exclusively focused on gender diversity. Indeed, this emphasis is evident from the UK Corporate Governance Code, which states that ‘[t]he search for board candidates should be conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender.’ Although diversity in general is noted, the express reference to gender indicates that gender diversity is currently dominant.

In other words, the diversity debate has, itself, lacked diversity. Fortunately, a recent report has been published which seeks to broaden the debate by examining ethnic diversity in the boardroom. The Parker Review into the Ethnic Diversity of UK Boards was published in November 2016, and like Lord Davies’s 2011 report, it begins by setting out a bleak picture of diversity. Amongst the FTSE 100, UK citizen directors of colour only account for around 8% of total director population. Of the 1,087 directors holding board positions in the FTSE 100, only 90 are persons of colour. 53% of FTSE 100 companies do not have any directors of colour at all, and only 9 people of colour hold the position of chairman or CEO.

Like the Davies Reports, the Parker Review rejected the introduction of quotas, and instead proposed a series of recommendations, of which the principal ones are:

Each FTSE 100 board should have at least one director of colour by 2021, and each FTSE 250 board should have at least one director of colour by 2024.

Nomination committees of FTSE 350 companies should require their human resources teams or search firms to identify and present qualified people of colour to be considered by the board when vacancies occur.

A description of the board’s policy on diversity should be set out in the company’s annual report. Companies that do not meet the board composition targets should explain in the annual report why they were not met.

It is hoped that the Parker Review gains the same level of traction and support that Lord Davies’s review garnered. Whilst Lord Davies’s review has not been entirely successful (namely the increase in female executive directors has been poor), it has improved the gender makeup of boards in a notable manner, and the goals set by Lord Davies were broadly met (notably the 25% by 2015 goal). Hopefully, the Parker Review can have a similar effect on UK boards in relation to ethnic diversity, and begin the process of widening the boardroom diversity debate.